Advice at the coffee shop

At a coffee shop, a man is talking with his wife about how he is “repositioning” their finances for the “crazy market we're in right now.” Then he proposed to:

• buy gold because the price is really high and lots of people are talking about it


• liquidate their stock and bond holdings, including retirement accounts, because they've lost so much money over the past few months


• keep cash at home instead of in the banks because "another one could go under at any moment, and who knows if it's ours?  And with inflation about to skyrocket, we have to be ready."

Strangely, he has no issue in using the Starbucks card to make the transaction - after all, when the Starbucks card is used to pay for coffee, you get a free shot of flavor with it.


The wife is nodding yes and shaking her head, saying "You're right.  I wish I knew what we should do.  Watching the T.V. and listening to the news is downright scary."

Here are some quick comments:

• On buying gold: Gold is really high right now.  In fact, the price of gold is over $1,700 for the first time in history.  But buying gold because it's expensive and lots of people are talking about it is not a great reason to purchase.  Would you buy more breakfast cereal if the price suddenly rose to record highs?  Some analysts think gold will continue to go higher, others aren't so sure, and almost everyone is hedging on when exactly the prognosticated moves will happen.


• On getting out of the market: The worst time to get out of a market is when you think it's at the bottom.  It locks in the absolute worst price for the stocks and bonds you hold.  Liquidating retirement accounts can be very problematic as well, since there are surrender fees and tax consequences.  Also, assets priced in domestic currency will typically adjust with inflation - that is, be worth more dollars as dollars become worth less.  The worth of gold in dollars is one instance of this.


• On keeping large amounts of cash at home: Identity theft is usually perpetrated by a family member or close friend with access to your home and accounts.  Wouldn't this same individual have access to your hoard of bills lying around the house?  Also, in an inflationary environment, you are earning no interest on your assets - they are just sitting there (buried there?), always worth the same number of dollars while everything else begins to cost more.  Some would argue that if the entire financial system crashed, only those with cash would be able to transact.  A question to consider:  with whom would these cash-rich individuals transact, and why would someone in a failed financial system use money at all?


• On using the Starbucks card: Nothing wrong with that at all, and the hazelnut is especially delicious.  It does beg the question as to why the man has more faith in Starbucks than in his local bank where he's sworn to close his accounts.

The best way to make a good decision is to educate yourself in personal financial matters.  Some places to look:

• Your local bank may offer basic financial literacy courses, and may also have financial advisors available to speak with you about your situation.


• Churches and other religious organizations often have financial education programs.  A popular one is Crown Financial Ministries.


• If you have substantial assets (over a million or two), consider contacting a wealth management firm


• Subscribe to a magazine or newspaper with a personal finance section.  SmartMoney, Fortune, or the Wall Street Journal may be good places to start


• Check out Investopedia's excellent tutorials for personal finance and investing at all levels.


• Seeking Alpha is a blog aggregator focused purely on investing, and may be appropriate if you have some basic understanding of investing.


• Ironically, the U.S. federal government has established a web site to assist with personal financial literacy called MyMoney.gov

Whatever you do, don't take the advice of the guy at the coffee shop.  Unless he is your financial advisor.

And if your husband wants to bury cash and gold in the back yard...bring him along for the conversation.

Best,

Bryan